Class Warfare and the Buffett Rule

Noman was delighted to find an Arthur Laffer opinion piece in this morning's paper.  In it, he argues that a millionaire surtax would hurt everyone but the super rich like Warren Buffet.  Noman imagines that Buffet knows this, which is why he feels safe in being so bold as to champion the notion.

Waving Mr. Buffett's op-ed for all to see, Mr. Obama wasted no time in proposing a surtax on millionaires called the "Buffett Rule." Putting aside all the oohing and ahhing over Mr. Buffett's selflessness, his effective tax rate on his true income would hardly budge if this "Buffett Rule" were applied.

Mr. Buffett's net worth rose by $10 billion in 2010 to $47 billion, according to Forbes Magazine. That increase, an unrealized capital gain, is part of his total income by any standard definition, including the one used by the Congressional Budget Office. After also including a $1.6 billion gift to the Bill and Melinda Gates Foundation, Mr. Buffett's true income in 2010 was much closer to $11.6 billion than the $40 million figure cited in his op-ed. Hence his true effective tax rate was only 6/100ths of 1% as opposed to 17.4%. And these are just the additions to his income that we know about.

That untaxed $11.2 billion of income would still not be touched by the Buffett Rule, after application of which his taxes would increase by $7 million. His effective tax rate would rise to .12% from .06%.

Zowie!  Meanwhile, the rest of us would have our growth ceiling, and probability of reaching it, lowered.

One might argue that Buffet's paltry tax relative to his true income only underscores his point, which is that he doesn't pay enough.  But, the real point is that under his own proposal, he still wouldn't.  The rest of us, on the other hand, would have to endure higher rates, higher taxes, a less prosperous economy, fewer routes to upward mobility, and the ignonimy of having to laud Buffet's selflessness.

After laying Mr. Buffet's pretensions to waste, Laffer targets his hypocrisy.

Mr. Buffett's donation to the Gates Foundation goes to the heart of my critique of his public call for higher tax rates on the rich...  [I]f his gift weren't tax sheltered he wouldn't give it. So much for "shared sacrifice."

In a 2007 CNBC interview, when asked why he shelters his money through tax-free strategies rather than writing big checks to Uncle Sam, Mr. Buffett responded: "I think that on balance the Gates Foundation, my daughter's foundation, my two sons' foundations will do a better job with lower administrative costs and better selection of beneficiaries than the government." 

So Mr. Buffett thinks he and his family can put their money to better use than the government can. I guess he's really not so different from the rest of us after all.

That article of clothing lying about your ankles, Mr. Buffet, is your pants.  Whatever was once holding them up has been plucked off.

Laffer is the foremost advocate of the well-documented and statistically-verified policy argument that if you want the rich to pay more taxes in both absolute and relative terms, then the high end of marginal tax rates should be lowered, not raised.

When it comes to raising tax revenues by raising tax rates on the rich, Mr. Buffett would again appear to be on the wrong side of the argument. Between 1921 and 1928, the top marginal income tax rate fell to 25% from 73%. During this period, tax receipts from the top 1% of income earners rose to 1.1% of GDP from 0.6% of GDP. The top income tax rate dropped to 70% from 91% after the Kennedy tax cuts began in 1964, while tax receipts from the top 1% of earners rose to 1.9% of GDP from 1.3% of GDP in the period 1960 to 1968. By the way, these periods were two of the biggest booms in U.S. history. 

Guess what was the third period of boom? Since 1978, the top earned income tax rate fell to 35% from 50%, the top capital gains tax rate fell to 15% from 39.9%, and the highest dividend tax rate fell to 15% from 70%. After taking office in 1993, President Clinton virtually eliminated the capital gains tax from the sale of owner-occupied homes and cut government spending as a share of GDP by the largest amount ever. 

Meanwhile, the top 1% of earners saw their tax payments climb to 3.3% of GDP in 2007 from 1.5% of GDP in 1978, while the bottom 95% saw their tax payments drop to 3.2% of GDP in 2007 from 5.4% of GDP in 1978. Why would Mr. Buffett want to reverse these numbers? 

Laffer's facts are tough to argue with.  But, that doesn't prevent Statists from trying.

Of course, cynics and die-hard progressives might object to the above evidence on the grounds that it was driven by an explosion of income gains. But that's largely the point.

The evidence suggests that big government Lefties' real attraction to higher taxes is that they leave the vast majority of people worse off, not better.  Widespread poverty, not increased receipts to the government, appears to be the true aim of the "fair share" set.  Anything to reduce the sphere of private decision-making, and increase the dominion of centralized power, eh?

And, that's just fine with Warren Buffet.  He'll cut his own deal with whatever hegemon needs to be placated.

Noman has written about Laffer, and Buffet, and encourages you read the former's "The End of Prosperity" (2008).  It sheds a great deal of light on class warfare as an economic stratagem, and makes one question the morals of those who foment it as a political one.